Columns

• Govt. explains plans for sale of six ‘non-strategic’ assets, and Hambantota port deal, but opposition grows
• Three more measures to raise big money, but IMF expresses caution
• Ranatunga in war of words with Amunugama over Concession Agreement, Cabinet decision unlikely tomorrow

By Our Political Editor
An International Monetary Fund (IMF) mission that spent two weeks in Colombo returned to Washington DC last week carrying with it new pledges from Government leaders on how the debt crisis will be tackled.
Among the measures is one to raise a billion US dollars through the immediate sale of “non-strategic” assets. Six state concerns have already been earmarked. Among them are the Hyatt Hotel now nearing completion, Water’s Edge, the Grand Oriental Hotel (GOH) and the Colombo Hilton. The modalities in respect of two other ventures to be sold are now being finalised. A government source said it would be different from the other four.

Another is to raise one billion US dollars from the Hambantota Port deal with the Chinese government owned China Merchants Port Holdings Company Limited. Government leaders told the IMF mission during discussions that they hope to wrap up the deal in the next ten days but sections in the Sri Lanka Freedom Party (SLFP) entertain reservations. The Concession Agreement with the Chinese firm, details of which appear elsewhere in this newspaper, has been the subject of a long drawn controversy with different ministerial sub committees studying different aspects. Opinion appears divided. The draft agreement is to come up for discussion at the weekly ministerial meeting tomorrow (Monday). The meeting has been advanced from Tuesday since the last session was not held. President Maithripala Sirisena was away in Indonesia.
Ports and Shipping Minister Arjuna Ranatunga has been engaged in a war of words with his colleague, Special Assignments Minister Sarath Amunugama over the Hambantota Port deal. This is an English translation of a letter written in Sinhala to Amunugama who headed a subcommittee:

“Concession Agreement – Hambantota Port Project”
“My initial observations and opinion regarding the final working draft of the Concession Agreement of the  Hambantota Port Project (Annexure 01) provided by Minister Malik Samarawickrema on 24.02.2017 are as follows;
“1. The proposed Concession Agreement on the Hambantota Project provided to me shows that the Hambantota Port will be handed over to a private firm.  The proposed private firm to be formed will be able to function as a separate Ports Authority. I am not in agreement to this.

“2. According to the Agreement given to me there is no condition mentioned about the return of the Hambantota port. However in previous Public-Private Partnership agreements by the Sri Lanka Ports Authority (SLPA) for its terminals, such conditions have been included. This is a shortcoming in the proposed agreement.

“3. My opinion is that the agreement cannot be signed without amending the SLPA Act.

“4.  It cannot be agreed on the 80 percent proposal (China Merchants 80 per cent; Ports Authority 20 per cent). Since in the first 20 years the Hambantota Port can be converted to a profit making venture I propose that the share proportion should be 65 percent: 35 percent. The share of the SLPA cannot be reduced with the proposed investment.

“5. It is clear that in the inclusion of the concessionary term as 99 years the Technical Evaluation proposals have not been taken into consideration. Therefore, the period should be reduced. At the end of the project the fixed assets should be handed over to the SLPA without an additional payment.

The ‘non-strategic’ assets to be sold to raise one billion dollars and overcome the external debt crisis.

“6. The sum to be paid by the company for the construction is given as 80 percent of the full expenditure. The value of the land has not been included. However, for the concessionary agreement the value of the land has been included. My opinion is that this should be amended since this is not correct.

“7. There is no mention about the action to be taken in the event of the violation of the conditions about security. In keeping with requirements of national and regional security, the security of the Hambantota Port should be brought under the existing legal framework.

“8. It is mentioned that in the event of the reduction of the extent of land the money to be paid too will be reduced. However, the private firm has agreed to pay only part of the expenses for stage 1 and II of the Hambantota port project and therefore there is no connection between the amount to be paid and extent of the land. There has been no assessment of the current land value and the future value.

“9. The concessionary agreement has several hints that the total value of the project is US$ 1.4 billion. Therefore it is not accurate to say that the total value of the Port is the same as the cost of the project US$ 1.4 billion and the reference needs to be removed. No economic or financial evaluation has been carried out to assess the total value. The strategic importance of the location has not been taken into consideration.

“10. The concessionary agreement suggests that the private firm should determine the charges to be levied. Entrusting this task to the private firm will be a serious threat to the Colombo Port, in particular to local businessmen and to Sri Lanka’s economy. (SLPA does not independently decide on Port charges, but with the approval of the Finance Ministry).
“11. There is no mention about the job security of the workers of the Magampura Port Management (Pvt) company and a clause should be included to prevent any future problems.

“12. The third stage of the Hambantota Port is only a concept. Since a proper study should be carried out on this proposed stage it cannot be included in the Concessionary Agreement. The payment by the private company is relevant only to stage I and II. Therefore, the reference about clause III should be removed.

“13. The 100 acre artificial island is not a part of the Hambantota Port and it has been proposed to hand over this section to the private company. It cannot be executed.

“14. The SLPA powers cannot be vested with a private company. Also they cannot be transferred to a third party. The SLPA Act does not provide for it. Some of the common services exclusively with the SLPA cannot be transferred to a private firm.

“15. Some of the annexures referred to in the proposed agreement have not been attached and therefore it is not possible to carry out a full study and submit a report.”

In the light of this letter, as well as a response that is expected from Minister Amunugama, it is highly unlikely ministers will be able to take a final decision on the deal tomorrow. Minister Ranatunga has also been engaged in a war of words with the Attorney General. “I sought your observations, opinion and advice urgently as myself, as the Minister of the line ministry needed to take necessary action immediately,” he said in a letter. Ranatunga added the AG has responded “without giving direct responses and as a result the SLPA has informed me that it cannot take a decision on the future action.” Earlier, he sought the advice of the AG on the legality of the SLPA signing the Concession Agreement. He was advised that there were no legal or constitutional constraints.

The sale of “non-strategic” assets and revenue from the Hambantota Port deal are among measures the government believes will help meet external obligations which stands at US$ 5.4 billion. Other proposals, on which the Government has sounded out the IMF, include raising US$ 650 million from a syndicated loan, raising US$ 1.5 billion through an International Sovereign Bond (ISB) and direct purchases from the market of US$ 500 million. However, the IMF mission has reiterated that it will not accept the syndicated loan and the International Sovereign Bond as measures that would strengthen the Net International Reserves. It has also cautioned that the purchase of US$ 500 million from the market would be a way of pushing for a sharp depreciation of the Sri Lankan rupee.

An-end-of-mission statement by the IMF team, after the completion of its second review, has acknowledged the adverse impact of the drought on the economy.  The IMF visit was to review the country’s economic programme that is being supported by a three-year Extended Fund Facility (EFF). Finance Minister Ravi Karunanayake is expected to travel to Washington DC to continue the dialogue with the IMF ahead of its spring meeting in April.

On the question of drought, which has affected paddy production adversely and a “rice mafia” hoarding stocks, the Government has been forced into emergency measures. The Ministry of Agriculture appears to have woken up to the dangerous situation that could arise from the next Yala season 2017 and the Maha season 2017/2018. Agriculture Minister Duminda Dissanayake is seeking government approval for five billion rupees to buy 2.5 million bushels of seed paddy required for the two upcoming seasons. He wants to distribute them free of charge to farmers.

Dissanayake has noted that drought conditions have led to the cultivation of only 300,000 hectares during the Maha season 2016/2017. This is whilst the average area of cultivation has remained 800,000 hectares. He has noted that this would have an adverse impact on seed production. Dissanayake wants to now set up Seed Farms “in suitable areas” during “Yala” season 2017. This is whilst the Cabinet Sub-Committee on the Cost of Living has decided to examine the existing purchase price for a kilogram of paddy under the procurement scheme. This is to examine whether the purchase price could be increased, at least temporarily.

Ministers are likely to review the situation at their meeting tomorrow. Another matter of significance is the decision made by ministers after Public Enterprise Development Minister Kabir Hashim presented a memorandum titled “SriLankan Airbus A 350–900 Aircraft Lease Termination.” The contents of this memorandum were reported in the Sunday Times (Political Commentary) of February 26. Hashim accused the SriLankan Airlines management of bypassing him and dealing with the Finance Ministry without his knowledge. This is what the minutes of the meeting of the Cabinet of Ministers on February 21 say:

“A memorandum by the Minister of Public Enterprise Development was considered along with the observations of H.E. the President and the further clarifications made by the Minister of Public Enterprise Development and the views expressed by several other members of the Cabinet, at this meeting. After discussion, it was decided to request H.E. the President, to appoint a Cabinet Sub-Committee in consultation with the Hon. Prime Minister, to examine the matters highlighted in the Memorandum and submit recommendations to the Cabinet, for consideration.”

In the light of the above decision, the Government has put on hold the payment of US$ 154 million to International Lease Finance Corporation (ILFC) as compensation payments for not receiving three Airbus A 350–900 aircraft. This is with the exclusion of an undisclosed first instalment SriLankan Airlines paid the Dutch firm AerCap with whom they had entered into a termination agreement in December last year. It also does not include the security deposit of US $ 7.5 million placed earlier. Originally, all negotiations had been conducted with AerCap, a Dutch firm with whom a deal had been worked out for US$ 98 million, according to the memorandum Hashim submitted to his ministerial colleagues.

The agreement with the ILFC, the Sunday Times learnt, has been signed by Suren Ratwatte, Chief Executive Officer (CEO) on behalf of SriLankan Airlines and Sean Sullivan, CEO of ILFC. The Cabinet Subcommittee will now probe, among other matters, on how the changes in the payments came about and whether the amounts agreed were a loss to the country. After all, the aircraft were not ordered by the present government but the previous one.

The Cabinet Committee on Economic Management (CCEM) has approved a lower payment. This is what the Prime Minister’s Secretary Saman Ekanayake told the Public Enterprise Development Ministry Secretary Ravindra Hewavitharana in a letter following a CCEM meeting. “After a detailed discussion the SriLankan Airlines was authorised to negotiate a termination cost for the three aircraft within the range of US$ 75-85 million in order to close the issue. An agreement should be reached by Friday 9th September 2016. Instructions were given to avoid possible media publicity for this issue.”  Was the last line intended to ensure that matters relating to compensation payments remained a secret? Ratwatte had signed the IFLC agreement in October last year, just a month after the letter in question.

References in these columns last week on moves by Ports and Shipping Minister Arjuna Ranatunga to initiate a scheme where World Cup winning cricketers will receive free a four bedroom apartment to be built on state property and two million rupees each have drawn a response. Megapolis and Western Development Minister Patali Champika Ranawaka told the Sunday Times his first cabinet memorandum on the subject was withdrawn since he found there was “misrepresentation” of facts. “I circulated a note to ministers. Thereafter, I presented a second cabinet memorandum. I was not asked to do so by anyone,” he said.

The weeks ahead, no doubt, will be crucial for the Government. Important among them will be how it would raise funds to meet external obligations. One such means is the Hambantota Port deal which is drawing some sharp criticism. Another is sure to be the sale of ‘non-strategic’ assets – a sore point with opposition parties. There is also a silver lining in all these issues for the government. The opposition remains weak and is not proactive in raising issue over most matters.